Double Advantage Safe Harbor (DASH) 401(k)

What Is a Double Advantage Safe Harbor (DASH) 401(k)?

The term double advantage safe harbor (DASH) 401(k) is a retirement investment plan that consolidates the benefits of a traditional 401(k) with a profit-sharing plan. Just like standard 401(k)s, these plans are offered to workers of participating employers. This type of plan augments the tax efficiency for the two employers and employees. DASH 401(k) plans are appropriate for small or medium sized businesses and companies that need to remunerate employees at specific levels.

How Double Advantage Safe Harbor (DASH) 401(k)s Work

Financial backers have a number of options with regards to how they need to put something aside for their retirement. Many individuals can exploit the different employer-offered options, including 401(k)s. These are tax-advantaged savings plans that permit workers to add to their retirement plans through automatic payroll deductions. A few employers match some or these amounts.

The double advantage safe harbor 401(k) is one of these options. This employer-sponsored plan is a hybrid plan that joins both the safe harbor 401(k) with profit-sharing. Safe Harbor 401(k)s work just like traditional 401(k)s with one key exception. Employer contributions are made without going through a vesting period. Profit-sharing permits companies to remember employees for their profits.

The DASH 401(k) plan is regularly utilized by employers who need to amplify contributions to certain employees, like owners and company executives. In exchange for mandatory vested employer contributions, administration fees are generally lower than a standard 401(k) plan and contribution limits are many times a lot higher. Employers and employees can contribute the maximum permissible deferral on an annual basis. Companies can make tax-deductible contributions through profit-sharing.

There are three steps to making a DASH 401(k):

1. First, the employer makes 3% vested contributions to choose safe harbor plan status. This purchases the plan an exemption from the [actual deferral percentage](/genuine deferral-percentage-real contribution-percentage) (ADP) testing requirements, which are set by the Internal Revenue Service (IRS), permitting higher-paid employees to boost their elective deferrals.
2. Since the ADP testing requirements are taken out, the subsequent step is to augment elective deferrals by the generously compensated employees, like through employee contributions.
3. Extra profit-sharing employer contributions are made. Computations are made to determine the number of extra contributions that can be made without diluting the allocations to the business owner.

The genuine deferral percentage test is the percentage of an employee's salary that is deferred under a 401(k) retirement plan. This test guarantees that companies are consistent with IRS rules and that they don't incline toward higher-paid employees over the individuals who receive lower wages.

Special Considerations

As verified above, employers who offer their employees a DASH 401(k) plan focus on making a 3% contribution. This amount is promptly vested to every single eligible employee. Any profit-sharing contributions that are made are done as such at the employer's tact.

Be that as it may, the DASH 401(k) plan isn't fit to all employers. That is on the grounds that it joins an age-based plan with a safe harbor plan. It is, in any case, great for business owners and management who are more seasoned than their employees.

Features

• Administrative fees are regularly lower for these plans while contributions will quite often be higher.
• Employers focus on a 3% vested contribution to choose safe harbor plan status and any profit-sharing contributions are made at their carefulness.
• Plans give tax productivity to employers and employees.
• DASH 401(k)s are just offered by employers.
• A double advantage safe harbor 401(k) is a retirement plan that consolidates the benefits of a traditional 401(k) with a profit-sharing plan.